A natural ally of renewables

Interview with Klaus-Dieter Borchardt, Director of the Internal Energy Market Division at the European Commission. The increased proportion of renewables in the energy mix will require clean and reliable backup sources, and gas is the only possible candidate for such a role. The E.U. is preparing to achieve the climate goals set for 2030 by redesigning the electricity market

We are not facing a "revolution" in the world of energy, but a process of "evolution" towards a decarbonized economy. This process will have gas as its key player. This is the opinion of the Director of the Internal Energy Market Division at the European Commission, Klaus-Dieter Borchardt, according to whom blue gold is "the natural ally" of renewables. The EU, to ensure an adequate gas supply (for which demand is expected in the next decade, against a decline in domestic production), aims to introduce a stronger regional cooperation between the member states and to diversify suppliers and routes.The Southern Gas Corridor (SGC) is strategic for this purpose, but so is access to liquefied natural gas (LNG) for all European countries.

What role will gas play in the immediate future and in the medium term? Do you believe it can be a transitional energy source as we move toward a future of lower carbon emissions?

Natural gas will be around for quite some time yet; indeed, we need to increase the share of renewable energy in the energy mix, but to achieve this we will also need a very reliable, non-polluting backup fuel. Today, natural gas is the only candidate for the job. I would say that natural gas is the natural friend of renewables, and therefore I believe it will play a key role in the transition toward a more decarbonized economy.

Are we entering an energy revolution?

I wouldn’t say that we will see an energy revolution; that seems excessive. I believe that the world of energy is evolving. We have the climate agreement, which will have an effect not only in Europe, but also globally, provided all of the parties fulfil their commitments. However, what I see is an evolution, not a revolution. Obviously, globally, the energy mix will be broader than in the European Union, and one of the objectives of the European Commission is precisely that of driving Europe to first place in renewable energy. In Europe, renewables will therefore play a dominant role. But as I said, natural gas is still highly significant.

Klaus-Dieter Borchardt

European Commission

He is Director of the Internal Energy Market Division at the European Commission, a role in which he manages the development of important laws, including the revision of the Regulation on the security of gas supplies. Mr. Borchardt's career at the European Commission began in 1987, when he joined the Directorate General for Employment.

What will the consequences for Europe be of the entry into force of the Paris Agreement?

We are currently committed to achieving the targets we set for 2030, i.e., a decline of 40% in CO2 emissions, having renewable energy account for at least 27% of energy used and reducing the E.U.'s energy consumption. This means that by 2030, 50% of electricity should be generated by renewable energy. To achieve this goal, we need to create the proper environment in which this development can take place, establish the right incentives, but we also need to deal with the impact that achieving this share of renewables will have on our electricity systems. Generating 50% of our electricity from renewables is a great challenge for the security of our grids and also for the market, because renewables are intermittent and highly variable. Therefore, we need to see how we can best integrate them into the market. This is precisely why we are redesigning the structure of the electricity market. The Commission is currently finalizing its proposed reform, which could conceivably be adopted soon. Therefore, we have a very clear vision as to how to get to 2030 and fulfil the commitments arising from the Paris Agreement, and we have laid out effective instruments in our regulatory proposals to do just that.

What were the reactions of the individual Member States to the 2030 framework for climate and energy?

The goal of reducing CO2 emissions by 30% by 2030 was accepted by all Heads of State and government, who all committed to achieving it. Therefore, this is a challenge and a task shared by all 28 E.U. Member States. It is also clear that, since the energy mix remains under the remit of the national governments, and each Member State has the right to decide on its own mix, each one will contribute to the reduction target in a different way. To have a global overview of the efforts made by each individual Member State, we have developed a concept of governance based on which the Commission will check that the Member States are actually making all possible efforts to contribute to reaching the targets of reducing CO2 and ensuring that renewables account for at least 27% of the mix. These targets are binding at E.U. level, not at Member State level, but, through governance, we will ensure that all Member States contribute to them in a way that we believe they can accomplish.

What are you doing for the security of European energy supplies?

We need to distinguish between gas and electricity. For gas, it is quite clear: already in February of this year, we proposed a review of the regulations on gas supply security, in which we made clear proposals on how to improve the resilience of our gas system. For example, we introduced much closer collaboration at the regional level. For the first time ever, we established a principle of solidarity based on the idea that if one Member State is in crisis, the others are required to take action to help it. We improved the preparedness of Member States with preventive intervention plans as well as emergency plans, which will be implemented not only at national level, but at regional level as well. The coordination between Member States will be much more robust. In terms of infrastructure, we clearly stated that our shared objective must be that of ensuring that all Member States of the European Union have at least three different ways of procuring gas, which may take place through the diversification of routes, suppliers or sources. As regards sources, for example, all Member States should have access to liquefied natural gas (LNG) in addition to gas from pipelines. They should also have access to stored gas, possibly by means of multiple routes, not only one or two. The ways in which gas is imported to the European Union need to be diversified. And, naturally, there should be more than one supplier. Countries and Member States should not rely on just one supplier. These are the principles, and we are currently working on the infrastructure and the interconnections that will make all of this possible. Therefore, in terms of gas, we are in good time and we hope that our supply security reform will be adopted by the end of the year. On the electricity front, our package of reforms, which will be announced very soon, includes regulations on risk preparedness. Also in that case we would like to have greater regional collaboration and solidarity.

As regards suppliers of gas to Europe, the Commission is about to enter into an antitrust agreement with Gazprom. What role will the Russian gas giant play in the future of the EU?

The agreement is still an open matter. Gazprom still needs to present its final commitment document, then there will be a market test relating to that commitment and only then will the Commission make its final decision. The role that the Russian gas monopolist will play in our market depends on Gazprom itself. If Gazprom changes its attitude and behaves like a normal player in our market, i.e., if it follows the rules of the third energy package just like any other player, then it is absolutely welcome in our market. But what we do not intend to tolerate is a situation in which Gazprom seeks to dictate the rules since it is such an important player with a dominant position in many Member States. This is absolutely unacceptable. But, since I have already seen several positive signals from Gazprom, I hope that it will be willing to adjust to the needs and rules of our market.

Do you believe that LNG from the United States can play a leading role in Europe in the future?

In general, yes, LNG can definitely play an important role in our market. This is also why in our gas strategy we said that all Member States should have access to LNG. The increase in the global supply of LNG (Australia and Canada, as well as African countries, have injected much more LNG into the global market) makes the European market tempting, especially for the United States, which has now lifted its restrictions on exports. Therefore, we expect LNG to flow to the European market, and we are preparing the required infrastructure. But the extent of sales will depend highly on its competitiveness with respect to pipeline gas. However, we will not interfere in this matter. This is an issue of market competition: if LNG prices are competitive, it will have a bright future in the European market.

Speaking of gas pipelines, there are currently many projects in play to bring gas from the east to Europe, such as the completion of the Southern Gas Corridor or the Nord Stream II. Do you think they are all necessary? And, in your opinion, which are the most strategic for Europe?

We definitely need the SGC because, as I already mentioned, we would like to diversify supply routes as well as sources. We receive gas from Azerbaijan through the SGC, but later on, as soon as we have completed negotiations, we could also receive it from Turkmenistan or, if the political or security situations change in Iraq or Iran, we could also import part from those countries or from Israel or Turkey.The SGC opens up many possibilities for the future, also in terms of diversification, which is very important for us. As regards imports from Russia, it is quite clear that we are not very pleased that Gazprom wants to transport its gas primarily through the Northern Corridor by laying two additional lines through the Baltic Sea, Nord Stream 2. This corridor would account for 80% of the gas that Russia exports to the European Union, and we do not believe it is the best way to proceed because it would be harmful for the current route, through Ukraine, which is already operating and can continue to transport Russian gas.Therefore, we do not see why it is necessary to construct or expand upon the capacity of the Northern Corridor. As regards the question of whether we will need all of this gas, for the next decade we expect consumption to remain rather stable in Europe, up to roughly 430 or 440 billion cubic meters per year.However, domestic production will decline due to problems in the Netherlands and the drop in production in the North Sea. This means that we could need more imports. However, this higher requirement will be covered in part by increased LNG imports and in part by other gas sources, not only through the Southern Gas Corridor, but also from North Africa and so on. If it comes from Russia, it will be welcome, but in that case, as I noted, not all through a single corridor.

Do you believe that the election of Donald Trump will impact the energy relationship between the United States and the European Union?

I believe it is still too early to respond, first of all because we do not know who Trump will appoint as energy secretary. We do not have much information at hand to understand what he thinks of the energy system. I mean that what we know is more relevant domestically. Trump has affirmed that he wants to eliminate all obstacles to the sale of shale gas and coal. This could have a significant impact on climate change. I have not heard him say whether he is against exporting LNG to the EU, so it remains to be seen whether export restrictions will continue to be relaxed or whether they will be reintroduced.However, in general, as far as the relationship with the United States is concerned, I do not expect changes in the area of energy to be as important as those that we can expect in global commerce or the climate. Indeed, Trump has denied that climate change is real, and this will naturally have a significant impact. He also announced that he will abandon the Trans-Pacific Partnership (TPP) free trade agreement. If he actually does this, the consequences will be huge for the global economy and for the rules of global commerce. However, as regards the energy sector, I have not yet detected this type of great political changes that could affect the relationship between the United States and the European Union. We need to watch closely and wait until we have a clearer idea of who will be put in charge of the energy sector and understand not only how the energy sector will be organized internally, but also how its external dimension will be considered. This all has yet to be seen. However, in all honesty, I do not believe that the energy system and the energy relationship between the United States and Europe will constitute significant problems.